Will Wells Fargo Ever Be Set Free?

Feb.28.13 | About: Wells Fargo (WFC)

In the past nine years, with the exception of the beginning of 2009, Wells Fargo & Company (NYSE:WFC) has traded roughly between $30 per share and where it currently sells for at $35.25. In the past year, it has moved from the low to the high end of this range gaining close to 20% for shareholders. But, at a certain point, one starts to wonder what it takes to break past $35?

During the same time, Bank of America (NYSE:BAC) has gained close to 70%!

A 70% return for WFC would put it over $51.00. This great disparity begs a closer look.

Fundamental Comparison Between WFC and BAC:

Earnings Per Share: In 2012 Wells Fargo gets the nod with a diluted earnings per share of $3.36 compared with Bank of America's $0.25.

Return on Equity: Wells Fargo again comes out the winner with approximately 13% ROE compared with Bank of America's 1.3%.

Dividend: Wells Fargo Pays $1.00 Per Share compared with Bank of America, which only pays $0.04.

Dividend Payout Ratio: Wells Fargo's dividend yields 2.85% at current market prices, while Bank of America's is only at 0.35%.

Price to Book Value: Wells Fargo's price to book is currently at 1.17 while Bank of America is selling at 0.51 P/B.

P/E Ratio: Wells Fargo 10.46, Bank of America 45.20.

Internal feeling:

Reading through the Wells Fargo earnings report gives one the sense that WFC is content with where it is considering the tough macroeconomic environment it is in. It could be summed up by saying "things are moving along, not great, but moving along."

On the other hand, BAC is implementing a "New BAC" initiative to cut costs and improve capital conditions. This report gives off the definite feeling that management is focused on protecting itself from what litigation and regulation losses may impose. This sense of urgency and uncertainty could be seen as a lack of control. While BAC has settled recently with Fannie Mae, claims keep coming in, and there is no real way to tell how much more there ultimately will be.

A look at acquisitions:

Compared with the abundant debt and legal obligations inherited by Bank of America from the purchases of Merrill and CountryWide, Wells Fargo's purchase of Wachovia has been quite successful. As of now, Wells Fargo is looking for ways to make Wachovia more profitable by offering more products to its new customers. This is completely different from the position of BAC, which only seems to have time to put out fires. Only major settlement payments have been rewarded to Bank Of America from its last two major acquisitions, and unfortunately, there could be a whole lot more to come.

Bottom Line:

While both businesses could be dissected much further, Wells Fargo seems to be the clear winner. A perfect metaphor would be that of a fat person walking a running dog. Bank of America being the fat person weighed down by lawsuits and further litigation; and Wells Fargo being the dog, only allowed to venture out as far as its owners' leash allows. It is obvious that Wells Fargo is doing a great job, only time will tell when the market will value its stock accordingly.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: The author is not a registered investment advisor and does not provide specific investment advice. Data sourced from Yahoo Finance and company reports. This information is for informational purposes only. As always, please do not invest more than you can afford to lose!